'Call of Duty' May Be Facing Its Biggest Battle

Chris Morris, Special to CNBC.com

Wednesday, 12 Jun 2013 | 10:58 AM ETCNBC.com

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Source: Callofduty.com

'Call of Duty Ghosts'

In the videogame world, there is no bigger behemoth than "Call of Duty."

For the past four years, the franchise has dominated the sales charts, outselling every other game. Last year's "Black Ops II" grossed over $500 million in just 24 hours, topping $1 billion within 15 days—and is on track to be the best-selling entry in the 10-year-old franchise's history.

This year could be different. Activision's flagship series, which celebrates 10 years in 2013, will once again face off against Take-Two Interactive Software's "Grand Theft Auto." And there are plenty of other contenders coming soon that are looking to become king of the hill—including a new franchise from the developers who created "Call of Duty."

"For the fall, the two biggest games in the industry coming out this year are 'Call of Duty' and 'Grand Theft Auto'," said Eric Handler, senior equity analyst for MKM Partners. "We're at an inflection point in the sense that there's a catalyst for change. And 'Call of Duty' is going to have to step it up a little bit."

Activision isn't sweating though. While the company has said it does not expect "Call of Duty: Ghosts," the name of this year's installment, to top the sales of "Black Ops II" (a prediction, it should be noted, that it has made every year of the franchise's existence), it does not believe the coming competition is any more ferocious than in the past.

"We've had strong competition for 'Call of Duty' every year of its existence," said Eric Hirshberg, CEO of Activision Publishing. "It's not the first time we've had a couple of very capable competitors."

"Grand Theft Auto" is the immediate threat, but Electronic Arts also has eyes on "Call of Duty's" throne. The publisher's "Battlefield" franchise has been increasingly gaining respect, though its sales are still significantly lower. A new installment of that franchise hits this fall. And due next year is the anticipated game from Respawn Entertainment, the development studio founded by Jason West and Vince Zampella, the creators of "Call of Duty" whose acrimonious split with Activision made headlines in 2010.

Analysts acknowledge the irony of Activision facing off against its former wunderkinds but say it would be foolish to assume they will immediately present a serious challenge to the series they created.

"Given the pedigree of those developers, they have a really great chance of a successful launch," said John Taylor of Arcadia Research. "Whether [their game] presents a threat to 'Call of Duty' will depend on how it turns out. The hardcore crowd will stand up and salute when it comes out, but whether the word of mouth propels demand beyond that remains to be seen."

To compete with "Call of Duty," competitors will have to present a truly compelling multiplayer component. While the two Activision's development teams that alternately make each year's installment of the franchise include a rich single player game, most players stick around for the online battles.

That has helped Activision continue to capitalize on the game— with downloadable content that fans quickly devour.

"The pattern we're seeing from gamers is very much about committing more time and attention to fewer worlds," said Hirshberg. "We used to be an industry of grazers and wide sampling was very commonplace. Now, you have an issue where it's a higher stakes game, but you're battling for biggest chunks of people's time and attention. [The games] have to be ... more creatively rich worlds."

There's also the matter of audience loyalty. Activision has nurtured its "Call of Duty" player base—and has so masterfully marketed the games that anticipation builds every year, even among people who don't play.

For example, Google searches for "Modern Warfare 4," which is what most people had expected this year's installment to be called result in over 122 million results. Results for last year's film "The Dark Knight Rises" come in at 107 million.

In other words, a game that doesn't exist has a bigger online presence than a film that made $448 million at the box office.

Even with that kind of drawing power, Taylor says he expects the franchise will see some of its market share erode over the next year or two.

MKM's Handler, however, notes that while people are buying fewer games these days—and focusing more on them—that doesn't mean they're going to limit themselves.

"You have to look at video games as your do movies," he said. "At the end of this cycle, good games will still sell well. When content is good, people buy it. And when it's not so compelling, they don't. If you give people good quality games to buy, they'll buy more than one. I don't think this is a winner take all field."